Business Loans and Benefits: How Can Loans Help My Business? – London Business News
If you are starting a business and need money to start growing your business, some of the most common fundraising methods are angel investors, crowdfunding, or even using credit cards to meet the needs of your business. However, when it comes to larger expenses, that’s where business loans come in.
Business loans, in simple terms, are a certain amount of money offered to a business when it may need a little cash flow support. Businesses can access different types of loans and usually agree on specific repayment terms and interest rates before they have full access to the funds.
In most cases, a business loan can be used for anything business related, but some loans have more restrictions. For example, loans can help start new projects, pay unpaid bills, hire new staff, buy new equipment and more.
The most common types of loans are unsecured and secured business loans. Unsecured loans are generally loans of less than £500,000 over a maximum term of five years. This type of loan generally does not require businesses to guarantee their commercial or residential properties, although some lenders may ask for a personal guarantee instead.
Secured commercial loans generally require applicants to put their commercial or private properties as collateral. Typical secured business loans are up to £2m, but this usually depends on the value of the applicant’s assets.
Essentially, the more equity you have in assets, the more you will be able to borrow. Semi-commercial properties and B2L properties can also be used as collateral.
Other types of loans include asset finance, merchant cash advance, revolving credit, invoice finance, and bridge loans, which you can read more about here.
Convenient and flexible
There can be various immediate benefits to getting a loan, for example, once the application and approval process is finalized, getting and receiving the loan can be a fairly quick process.
Second, businesses have great flexibility in how their loans can be spent. Lenders, mainly banks, usually don’t care, but they do care if you repay your loan on time.
Business or investor loans
While business loans and investors can both provide the financial support your business needs, the main difference between bringing in an investor or getting a loan is that investors generally expect a return on their investment.
In this case, investors usually expect a share of the company. However, with business loans, you simply pay a fixed amount plus interest to the lender.
Due to the duration and amount of business loans, the interest rates of these loans have quite reasonable interest rates, compared to other types of personal loans.
Although it depends on where you get your loan from, as there is a lot of competition in the small business loan market, so lenders are doing what they can to attract and retain customers.
Increase business working capital support
As the title suggests, businesses can use their loan money to increase their working capital by helping you manage day-to-day operations and cover expenses, without having to dip into emergency funds. This can be particularly useful if companies are having cash flow problems.
Boost your business credit rating
However, these benefits go beyond day-to-day loan use and business growth. Getting a business loan and making timely payments can show banks and lenders that your business is trustworthy and financially stable.
This in turn can help boost your business credit score, allowing you to receive lower loan interest rates in the future.
To conclude, business loans can help in many ways, but before you start your lending journey, make sure you have a repayment plan in place. This will not only make future borrowing cheaper, but will also ensure that your interest rates do not increase in the future.